QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

or

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission file number: 001-34207

Dynavax Technologies Corporation

(Exact name of registrant as specified in its charter)

Delaware

33-0728374

(State or other jurisdiction of
incorporation or organization)

(IRS Employer
Identification No.)

2929 Seventh Street, Suite 100

Berkeley, CA 94710-2753

(510) 848-5100

(Address, including Zip Code, and telephone number, including area code, of the registrant’s principal executive offices)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
x
No
¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registration was required to submit and post such files). Yes
x
No
¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

¨

Accelerated filer

x

Non-accelerated filer

¨

Smaller reporting company

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
¨
No
x

As of November 2, 2015, the registrant had outstanding 38,425,277 shares of common stock.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to a number of risks and uncertainties. All statements that are not historical facts are forward-looking statements, including statements about our ability to successfully develop and achieve regulatory approval for HEPLISAV-B™, our business and collaboration strategy, our intellectual property position, our product development efforts, our ability to commercialize our product candidates, our ability to manufacture commercial supply and meet regulatory requirements, the timing of the introduction of our products, uncertainty regarding our capital needs and future operating results and profitability, anticipated use of and sources of funds as well as our plans, objectives, expectations and intentions. These statements appear throughout this Quarterly Report on Form 10-Q and can be identified by the use of forward-looking language such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “future,” or “intend,” or the negative of these terms or other variations or comparable terminology.

Actual results may vary materially from those in our forward-looking statements as a result of various factors that are identified in “Item 1A—Risk Factors” and “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this document. No assurance can be given that the risk factors described in this Quarterly Report on Form 10-Q are all of the factors that could cause actual results to vary materially from the forward-looking statements. All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Readers should not place undue reliance on these forward-looking statements and are cautioned that any such forward-looking statements are not guarantees of future performance. We assume no obligation to update any forward-looking statements.

This Quarterly Report on Form 10-Q includes trademarks and registered trademarks of Dynavax Technologies Corporation. Products or service names of other companies mentioned in this Quarterly Report on Form 10-Q may be trademarks or registered trademarks of their respective owners.

3

P
ART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Dynavax Technologies Corporation

Condensed Consolidated Balance Sheets

(In thousands, except per share amounts)

September 30,

December 31,

2015

2014

(unaudited)

(Note 1)

Assets

Current assets:

Cash and cash equivalents

$

103,031

$

49,511

Marketable securities available-for-sale

117,666

73,141

Accounts receivable

1,163

727

Prepaid expenses and other current assets

2,489

4,058

Total current assets

224,349

127,437

Property and equipment, net

11,606

7,924

Goodwill

2,106

2,277

Restricted cash

615

632

Other assets

231

20

Total assets

$

238,907

$

138,290

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$

2,359

$

1,159

Accrued research and development

7,861

6,938

Accrued liabilities

5,952

6,317

Deferred revenues

3,558

5,865

Total current liabilities

19,730

20,279

Deferred revenues, net of current portion

6,988

6,900

Long-term debt

-

9,559

Other long-term liabilities

1,001

1,070

Total liabilities

27,719

37,808

Commitments and contingencies (Note 4)

Stockholders’ equity:

Preferred stock: $0.001 par value

Authorized: 5,000 shares; Issued and outstanding:

Series B Convertible Preferred Stock — no shares and 43 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively

-

-

Common stock: $0.001 par value; 69,500 shares authorized at September 30, 2015 and December 31, 2014; 38,425 and 26,307 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively

38

26

Additional paid-in capital

886,575

695,058

Accumulated other comprehensive loss

(2,560

)

(1,669

)

Accumulated deficit

(672,865

)

(592,933

)

Total stockholders’ equity

211,188

100,482

Total liabilities and stockholders’ equity

$

238,907

$

138,290

See accompanying notes.

4

Dynavax Technologies Corporation

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2015

2014

2015

2014

Revenues:

Collaboration revenue

$

829

$

1,795

$

2,230

$

6,199

Grant revenue

359

414

608

2,546

Service and license revenue

-

-

527

10

Total revenues

1,188

2,209

3,365

8,755

Operating expenses:

Research and development

24,105

28,072

66,011

64,942

General and administrative

5,524

4,083

15,481

12,325

Unoccupied facility expense

-

131

-

386

Total operating expenses

29,629

32,286

81,492

77,653

Loss from operations

(28,441

)

(30,077

)

(78,127

)

(68,898

)

Other income (expense):

Interest income

33

42

78

162

Interest expense

(62

)

-

(572

)

-

Other income, net

17

216

360

300

Loss on extinguishment of debt

(1,671

)

-

(1,671

)

-

Net loss

$

(30,124

)

$

(29,819

)

$

(79,932

)

$

(68,436

)

Basic and diluted net loss per share

$

(0.82

)

$

(1.13

)

$

(2.43

)

$

(2.60

)

Weighted average shares used to compute basic and diluted net

loss per share

36,532

26,291

32,880

26,288

Dynavax Technologies Corporation

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2015

2014

2015

2014

Net loss

$

(30,124

)

$

(29,819

)

$

(79,932

)

$

(68,436

)

Other comprehensive income (loss):

Unrealized gain (loss) on marketable securities

available-for-sale

5

(1

)

4

69

Cumulative foreign currency translation adjustments

162

(921

)

(895

)

(1,027

)

Total other comprehensive income (loss)

167

(922

)

(891

)

(958

)

Total comprehensive loss

$

(29,957

)

$

(30,741

)

$

(80,823

)

$

(69,394

)

See accompanying notes.

5

Dynavax Technologies Corporation

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Nine Months Ended

September 30,

2015

2014

Operating activities

Net loss

$

(79,932

)

$

(68,436

)

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

958

1,016

Gain on disposal of property and equipment

-

(24

)

Accretion of discounts and amortization of premiums on marketable securities

476

714

Unoccupied facility expense

-

386

Accretion of debt discount related to debt financing

(115

)

-

Cash-settled portion of stock-based compensation expense

387

-

Stock compensation expense

6,502

4,532

Loss on extinguishment of debt

1,671

-

Changes in operating assets and liabilities:

Accounts receivable

(436

)

900

Prepaid expenses and other current assets

1,569

(2,203

)

Restricted cash and other assets

(211

)

(575

)

Accounts payable

273

3,284

Accrued liabilities and other long term liabilities

364

4,334

Deferred revenues

(2,219

)

(799

)

Net cash used in operating activities

(70,713

)

(56,871

)

Investing activities

Purchases of marketable securities

(127,918

)

(44,807

)

Proceeds from maturities of marketable securities

82,920

99,500

Purchases of property and equipment, net

(4,246

)

(1,207

)

Net cash (used in) provided by investing activities

(49,244

)

53,486

Financing activities

Proceeds from issuance of common stock, net

183,899

-

Payment of debt

(10,990

)

-

Proceeds from exercise of stock options and restricted stock awards

237

13

Proceeds from exercise of warrants

222

-

Proceeds from Employee Stock Purchase Plan

291

130

Net cash provided by financing activities

173,659

143

Effect of exchange rate changes on cash and cash equivalents

(182

)

(224

)

Net increase (decrease) in cash and cash equivalents

53,520

(3,466

)

Cash and cash equivalents at beginning of period

49,511

23,122

Cash and cash equivalents at end of period

$

103,031

$

19,656

Supplemental disclosure of cash flow information

Non-cash investing and financing activities:

Cash paid during the year for interest

$

720

$

-

Disposal of fully depreciated property and equipment

$

171

$

675

Net change in unrealized gain on marketable securities

$

4

$

69

See accompanying notes.

6

Dynavax Technologies Corporation

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Organization and Summary of Significant Accounting Policies

Dynavax Technologies Corporation (“we,” “our,” “us,” “Dynavax” or the “Company”) is a clinical-stage biopharmaceutical company that uses toll-like receptor (“TLR”) biology to discover and develop novel vaccines and therapeutics. Our development programs are organized under our three areas of focus: vaccine adjuvants, cancer immunotherapy, and autoimmune and inflammatory diseases. We were incorporated in California in August 1996 under the name Double Helix Corporation, and we changed our name to Dynavax Technologies Corporation in September 1996. We reincorporated in Delaware in 2000.

Basis of Presentation

Our accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X. In our opinion, these unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which we consider necessary to present fairly our financial position and the results of our operations and cash flows. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted. Interim-period results are not necessarily indicative of results of operations or cash flows to be expected for a full-year period or any other interim-period. The condensed consolidated balance sheet at December 31, 2014, has been derived from audited financial statements at that date, but excludes disclosures required by GAAP for complete financial statements.

The unaudited condensed consolidated financial statements and these notes should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the Securities and Exchange Commission (the “SEC”).

The unaudited condensed consolidated financial statements include the accounts of Dynavax and our wholly-owned subsidiaries, Dynavax GmbH (formerly known as Rhein Biotech GmbH) and Dynavax International, B.V. Dynavax International, B.V. was dissolved in January 2015. All significant intercompany accounts and transactions, among consolidated entities, have been eliminated. We operate in one business segment: the discovery and development of biopharmaceutical products.

Liquidity and Financial Condition

We have incurred significant operating losses and negative cash flows from operations since our inception. As of September 30, 2015, we had cash, cash equivalents and marketable securities
of $220.7 million.
We currently estimate that we have sufficient cash resources to meet our anticipated cash needs through at least the next 12 months based on cash, cash equivalents and marketable securities on hand as of September 30, 2015, anticipated revenues and funding from existing collaboration agreements
.

We expect to continue to spend substantial funds in connection with the development and manufacturing of our product candidates, particularly HEPLISAV-B
TM
and our investigational cancer immunotherapeutic product candidate, SD-101
, human clinical trials for our other product candidates and additional applications and advancement of our technology. In order to continue these activities, we may need to raise additional funds. This may occur through strategic collaboration and licensing arrangements and/or future public or private debt and equity financings. Sufficient additional funding may not be available on acceptable terms, or at all. If adequate funds are not available in the future, we may need to delay, reduce the scope of or put on hold the HEPLISAV-B program or our other development programs while we seek strategic alternatives
.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make informed estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ materially from these estimates.

Reverse Stock Split

All references to numbers of shares of our common stock and per-share information in the accompanying financial statements have been adjusted retroactively to reflect the Company’s ten-for-one reverse stock split effected on November 7, 2014. The par value was not adjusted as a result of the reverse stock split.

7

Summary of Significant Accounting Policies

There have been no significant changes in our significant accounting policies during the nine months ended September 30, 2015, as compared with those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014.

Revenue Recognition

Our revenues consist of amounts earned from collaborations, grants and fees from services and licenses. We enter into license and manufacturing agreements and collaborative research and development arrangements with pharmaceutical and biotechnology partners that may involve multiple deliverables. Our arrangements may include one or more of the following elements: upfront license payments, cost reimbursement for the performance of research and development activities, milestone payments, other contingent payments, contract manufacturing service fees, royalties and license fees. Each deliverable in the arrangement is evaluated to determine whether it meets the criteria to be accounted for as a separate unit of accounting or whether it should be combined with other deliverables. In order to account for the multiple-element arrangements, the Company identifies the deliverables included within the arrangement and evaluates which deliverables represent separate units of accounting. Analyzing the arrangement to identify deliverables requires the use of judgment, and each deliverable may be an obligation to deliver services, a right or license to use an asset, or another performance obligation. We recognize revenue when there is persuasive evidence that an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured.

Non-refundable upfront fees received for license and collaborative agreements and other payments under collaboration agreements where we have continuing performance obligations related to the payments are deferred and recognized over our estimated performance period. Revenue is recognized on a ratable basis, unless we determine that another method is more appropriate, through the date at which our performance obligations are completed. Management makes its best estimate of the period over which we expect to fulfill our performance obligations, which may include clinical development activities. Given the uncertainties of research and development collaborations, significant judgment is required to determine the duration of the performance period. We recognize cost reimbursement revenue under collaborative agreements as the related research and development costs are incurred, as provided for under the terms of these agreements.

Contingent consideration received for the achievement of a substantive milestone is recognized in its entirety in the period in which the milestone is achieved. A milestone is defined as an event having all of the following characteristics: (i) there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved, (ii) the event can only be achieved based in whole or in part on either the entity’s performance or a specific outcome resulting from the entity’s performance and (iii) if achieved, the event would result in additional payments being due to the entity.

Our license and collaboration agreements with our partners provide for payments to be paid to us upon the achievement of development milestones. Given the challenges inherent in developing biologic products, there is substantial uncertainty whether any such milestones will be achieved at the time we entered into these agreements. In addition, we evaluate whether the development milestones meet the criteria to be considered substantive. The conditions include: (i) the development work is contingent on either of the following: (a) the vendor’s performance to achieve the milestone or (b) the enhancement of the value of the deliverable item or items as a result of a specific outcome resulting from the vendor’s performance to achieve the milestone; (ii) it relates solely to past performance and (iii) it is reasonable relative to all the deliverable and payment terms within the arrangement. As a result of our analysis, we may consider our development milestones to be substantive and, accordingly, we expect to recognize as revenue future payments received from such milestones as we achieve each milestone.

Milestone payments that are contingent upon the achievement of substantive at-risk performance criteria are recognized in full upon achievement of those milestone events in accordance with the terms of the agreement and assuming all other revenue recognition criteria have been met. All revenue recognized to date under our collaborative agreements has been nonrefundable.

Our license and collaboration agreements with certain partners also provide for contingent payments to be paid to us based solely upon the performance of our partner. For such contingent payments we expect to recognize the payments as revenue upon receipt, provided that collection is reasonably assured and the other revenue recognition criteria have been satisfied.

Revenues from manufacturing agreements are recognized upon meeting revenue recognition criteria for substantial performance and acceptance by the customer.

Revenue from royalty payments is contingent on future sales activities by our licensees. As a result, we recognize royalty revenue when all revenue recognition criteria have been satisfied.

Revenue from government and private agency grants is recognized as the related research expenses are incurred and to the extent that funding is approved. Additionally, we recognize revenue based on the facilities and administrative cost rate reimbursable per the terms of the grant awards.

8

Research and Development Expenses and Accruals

Research and development expenses include personnel and facility-related expenses, outside contracted services including clinical trial costs, manufacturing and process development costs, research costs and other consulting services and non-cash stock-based compensation. Research and development costs are expensed as incurred. Amounts due under such arrangements may be either fixed fee or fee for service, and may include upfront payments, monthly payments and payments upon the completion of milestones or receipt of deliverables. Non-refundable advance payments under agreements are capitalized and expensed as the related goods are delivered or services are performed.

We contract with third parties to perform various clinical trial activities in the on-going development of potential products. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows to our vendors. Payments under the contracts depend on factors such as the achievement of certain events, successful enrollment of patients, and completion of portions of the clinical trial or similar conditions. Our accrual for clinical trials is based on estimates of the services received and efforts expended pursuant to contracts with clinical trial centers and clinical research organizations. We may terminate these contracts upon written notice and we are generally only liable for actual effort expended by the organizations to the date of termination, although in certain instances we may be further responsible for termination fees and penalties. The Company makes estimates of its accrued expenses as of each balance sheet date based on the facts and circumstances known to the Company at that time. There have been no material adjustments to the Company’s prior period accrued estimates for clinical trial activities through September 30, 2015.

Recent Accounting Pronouncements

Accounting Standards Update 2014-09

In May 2014, the FASB issued guidance codified in ASC 606,
Revenue Recognition — Revenue from Contracts with Customers
, which amends the guidance in former ASC 605,
Revenue Recognition
,
which provides
a single comprehensive
model
for
entities
to use in accounting
for
revenue
arising
from
contracts
with customers
and will supersede
most
current
revenue
recognition
guidance.
This Accounting Standards Update (“ASU”)
is
based
on the
principle
that
revenue
is recognized
to depict
the
transfer
of goods or services
to customers
in an amount
that
reflects
the
consideration
to which the
entity
expects
to be entitled
in exchange
for
those
goods or services.
The ASU
also
requires
additional disclosure
about
the
nature,
amount,
timing
and uncertainty
of revenue
and cash
flows
arising
from
customer contracts,
including
significant
judgments
and changes
in judgments
and assets
recognized
from
costs
incurred
to obtain
or fulfill
a contract.
In July 2015, the FASB deferred the effective date for annual reporting periods beginning after December 15, 2017 (including interim periods within those periods).
The Company is currently evaluating the impact of the provisions of ASC 606 on its financial statements.

Accounting Standards Update 2014-15

In August 2014, the FASB issued guidance codified in ASC 205,
Presentation of Financial Statements — Going Concern
.
Accounting Standards Update 2014-15 requires an entity’s management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern and if those conditions exist, to make the required disclosures. The standard is effective for annual periods ending after December 15, 2016, and interim periods therein. The Company does not expect that the adoption of this standard will have a significant impact on its financial statements.

Accounting Standards Update 2015-03

In April 2015, the FASB issued ASU No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the corresponding debt liability rather than as an asset. This ASU will be effective for the Company in fiscal year 2016. The Company does not expect that the adoption of this standard will have a significant impact on its financial statements.

9

2. Fair Value Measurements

The Company measures fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The accounting standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

·

Level 1—Observable inputs, such as quoted prices in active markets for identical assets or liabilities;

·

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

·

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities; therefore, requiring an entity to develop its own valuation techniques and assumptions.

The carrying amounts of cash equivalents, accounts receivable, accounts payable and accrued liabilities are considered reasonable estimates of their respective fair value because of their short-term nature. The carrying amount of our long-term debt is considered a reasonable estimate of its respective fair value as it is amortized over its life using the effective interest rate.

Recurring Fair Value Measurements

The following table represents the fair value hierarchy for our financial assets (cash equivalents and marketable securities) measured at fair value on a recurring basis as of September 30, 2015 and December 31, 2014 (in thousands):

Level 1

Level 2

Level 3

Total

September 30, 2015

Money market funds

$

61,748

$

-

$

-

$

61,748

U.S. government agency securities

-

49,911

-

49,911

Corporate debt securities

-

103,875

-

103,875

Total

$

61,748

$

153,786

$

-

$

215,534

Level 1

Level 2

Level 3

Total

December 31, 2014

Money market funds

$

46,989

$

-

$

-

$

46,989

U.S. government agency securities

-

73,141

-

73,141

Total

$

46,989

$

73,141

$

-

$

120,130

Money market funds are highly liquid investments and are actively traded. The pricing information on these investment instruments is readily available and can be independently validated as of the measurement date. This approach results in the classification of these securities as Level 1 of the fair value hierarchy.

U.S. Government agency securities and corporate debt securities are measured at fair value using Level 2 inputs. We review trading activity and pricing for these investments as of each measurement date. When sufficient quoted pricing for identical securities is not available, we use market pricing and other observable market inputs for similar securities obtained from various third party data providers. These inputs represent quoted prices for similar assets in active markets or these inputs have been derived from observable market data. This approach results in the classification of these securities as Level 2 of the fair value hierarchy.

There were no transfers between Level 1 and Level 2 during the nine months ended September 30, 2015.

10

3. Cash, cash equivalents and marketable securities

The following is a summary of cash, cash equivalents and marketable securities available-for-sale as of September 30, 2015 and December 31, 2014 (in thousands):

Amortized Cost

Unrealized Gains

Unrealized Losses

Estimated Fair Value

September 30, 2015

Cash and cash equivalents:

Cash

$

5,163

$

-

$

-

$

5,163

Money market funds

61,748

-

-

61,748

Corporate debt securities

36,119

4

(3

)

36,120

Total cash and cash equivalents

103,030

4

(3

)

103,031

Marketable securities available-for-sale:

U.S. government agency securities

49,909

4

(2

)

49,911

Corporate debt securities

67,753

80

(78

)

67,755

Total marketable securities available-for-sale

117,662

84

(80

)

117,666

Total cash, cash equivalents and marketable securities

$

220,692

$

88

$

(83

)

$

220,697

December 31, 2014

Cash and cash equivalents:

Cash

$

2,522

$

-

$

-

$

2,522

Money market funds

46,989

-

-

46,989

Total cash and cash equivalents

49,511

-

-

49,511

Marketable securities available-for-sale:

U.S. government agency securities

73,140

11

(10

)

73,141

Total marketable securities available-for-sale

73,140

11

(10

)

73,141

Total cash, cash equivalents and marketable securities

$

122,651

$

11

$

(10

)

$

122,652

The maturities of our marketable securities available-for-sale are as follows (in thousands):

September 30, 2015

Amortized Cost

Estimated Fair Value

Mature in one year or less

$

117,662

$

117,666

Mature after one year through two years

-

-

$

117,662

$

117,666

All of our investments are classified as short-term and available-for-sale, as we may not hold our investments until maturity. Available-for-sale securities are carried at fair value based on inputs that are observable, either directly or indirectly, such as quoted market prices for similar securities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the securities, with unrealized gains and losses included in accumulated other comprehensive income (loss) in stockholders’ equity. Realized gains and losses and declines in value, if any, judged to be other than temporary on available-for-sale securities are included in interest income or expense. The cost of securities sold is based on the specific identification method. Management assesses whether declines in the fair value of investment securities are other than temporary. In determining whether a decline is other than temporary, management considers the following factors:

·

Whether the investment has been in a continuous unrealized loss position for over 12 months;

·

the duration to maturity of our investments;

·

our intention and ability to hold the investments to maturity and if it is not more likely than not that we will be required to sell the investment before recovery of the amortized cost bases;

·

the credit rating, financial condition and near-term prospects of the issuer; and

·

the type of investments made.

To date, there have been no declines in fair value that have been identified as other than temporary.

11

4. Commitments and Contingencies

We lease our facilities in Berkeley, California (“Berkeley Lease”) and Düsseldorf, Germany (“Düsseldorf Lease”) under operating leases that expire in June 2018 and March 2023, respectively. The Berkeley Lease provides for periods of escalating rent. The total cash payments over the life of the lease are divided by the total number of months in the lease period and the average rent is charged to expense each month during the lease period. We entered into sublease agreements under the Düsseldorf Lease for a certain portion of the leased space. The sublease income is offset against our rent expense.

During September 2013, we decided not to occupy a portion of our facility in Berkeley, California. During the first three quarters of 2014, we reassessed our timing and ability to sublet a portion of our facility and recorded a total unoccupied facility expense of $0.4 million for the year ended December 31, 2014. In December 2014, we decided to utilize the unoccupied portion of the facility and began to recognize rent expense under the terms noted in the Berkeley Lease.

Total net rent expense related to our operating leases for the three month periods ended September 30, 2015 and 2014, was $0.5 million and $0.4 million, respectively. Total net rent expense related to our operating leases for the nine month periods ended September 30, 2015 and 2014, was $1.5 million and $1.3 million, respectively. Deferred rent was $0.5 million and $0.6 million as of September 30, 2015 and December 31, 2014, respectively.

Future minimum payments under the non-cancelable portion of our operating leases at September 30, 2015, excluding payments from sublease agreements, are as follows (in thousands):

Years ending December 31,

2015 (remaining)

$

602

2016

2,312

2017

2,361

2018

1,306

2019

480

Thereafter

1,561

Total

$

8,622

In addition to the non-cancelable commitments included above, we have entered into contractual arrangements that obligate us to make payments to the contractual counterparties upon the occurrence of future events. In addition, in the normal course of operations, we have entered into license and other agreements and intend to continue to seek additional rights relating to compounds or technologies in connection with our discovery, manufacturing and development programs. Under the terms of the agreements, we may be required to pay future up-front fees, milestones and royalties on net sales of products originating from the licensed technologies, if any, or other payments contingent upon the occurrence of future events that cannot reasonably be estimated.

We rely on research institutions, contract research organizations, clinical investigators as well as clinical and commercial material manufacturers of our product candidates. As of September 30, 2015, under the terms of our agreements, including certain agreements relating to the ongoing Phase 3 trial of HEPLISAV-B, we are obligated to make future payments as services are provided of approximately $7.2 million through 2016. These agreements are terminable by us upon written notice. Generally, we are liable only for actual effort expended by the organizations at any point in time during the contract through the notice period.

From time to time, we are involved in claims, suits, and proceedings arising from the ordinary course of our business, including actions with respect to intellectual property claims, commercial claims, and other matters. Such claims, suits, and proceedings are inherently uncertain and their results cannot be predicted with certainty. Regardless of the outcome, such legal proceedings can have an adverse impact on us because of legal costs, diversion of management resources, and other factors. In addition, it is possible that a resolution of one or more such proceedings could result in substantial monetary damage awards, fines and penalties or orders requiring a change in our business practices, which could in the future materially and adversely affect our financial position, results of operations, or cash flows in a particular period.

5. Collaborative Research and Development Agreements

AstraZeneca

In September 2006, we entered into a research collaboration and license agreement with AstraZeneca for the discovery and development of TLR9 agonist-based therapies for the treatment of asthma and chronic obstructive pulmonary disease.

12

In Octo
ber 2011, we amended our agreement with AstraZeneca to provide that we will conduct initial clinical development of AZD1419 and AstraZeneca agreed to fund all program expenses to cover the cost of development activities through Phase 2a. Under the terms of
the amended agreement, we received an initial payment of $3 million in 2011 to begin the clinical development program. We and AstraZeneca agreed to advance AZD1419 towards a Phase 1 clinical trial, which resulted in a development funding payment of $6 mil
lion received in the fourth quarter of 2012.

In January 2014, we amended our agreement with AstraZeneca and received a $5.4 million payment that was due upon execution of this amendment.

In December 2014, we amended our agreement with AstraZeneca whereby AstraZeneca will fully fund and Dynavax will conduct a Phase 2a safety and efficacy trial of AZD1419 in patients with asthma. In the fourth quarter of 2014, we received an $8.0 million payment due upon execution of this amendment, to be applied towards research and development expenses incurred in conducting the Phase 2a study.

Under the terms of this agreement, as amended, we are eligible to receive up to $100 million in additional milestone payments, based on the achievement of certain development and regulatory objectives. Additionally, upon commercialization, we are eligible to receive tiered royalties ranging from the mid to high single-digits based on product sales of any products originating from the collaboration. We have the option to co-promote in the United States products arising from the collaboration, if any. AstraZeneca has the right to sublicense its rights upon our prior consent.

Revenue from the $8.0 million payment received in the fourth quarter of 2014 was deferred and is being recognized as development work is performed, through June 2018. The $5.4 million payment received in the first quarter of 2014 and the $3.0 million initial payment received in 2011 were also deferred and are being recognized over the estimated remaining period of performance of development work through June 2018, which is approximately 33 months. The estimated remaining period of performance of development work was revaluated during the quarter and updated from December 2017 to June 2018.

The following table summarizes the revenues earned under our agreement with AstraZeneca, included as collaboration revenue in our consolidated statements of operations (in thousands):

Three Months Ended

Nine Months Ended

September 30,

September 30,

2015

2014

2015

2014

Initial payment

$

60

$

180

$

186

$

540

Subsequent payment

223

675

697

2,025

Performance of research activities

546

309

1,347

1,741

Total

$

829

$

1,164

$

2,230

$

4,306

As of September 30, 2015 and December 31, 2014,
total deferred revenue from the initial payment, subsequent payment and development funding payments was $10.5 million and $12.8 million, respectively.

Absent early termination, the agreement will expire when all of AstraZeneca’s payment obligations expire. AstraZeneca has the right to terminate the agreement at any time upon prior written notice and either party may terminate the agreement early upon written notice if the other party commits an uncured material breach of the agreement.

National Institutes of Health (“NIH”) and Other Funding

We have been awarded various grants from the NIH and the NIH’s National Institute of Allergy and Infectious Disease (“NIAID”) in order to fund research. The awards are related to specific research objectives and we earn revenue as the related research expenses are incurred. We have earned revenue during the periods ended September 30, 2015 and 2014 from the following awards:

·

August 2014, NIH awarded us $0.2 million to fund research in developing a transgenic mouse model to study human TLR9 role in disease.

·

September 2013, NIH awarded us $0.2 million to fund research in developing TLR antagonists for therapy of hepatic fibrosis and cirrhosis.

·

June 2012, NIH awarded us $0.6 million to fund research in screening for inhibitors of TLR8 for treatment of autoimmune diseases.

·

May 2012, NIH awarded us $0.4 million to fund development of TLR8 inhibitors for treatment of rheumatoid arthritis.

13

·

August 2010, NIAID awarded us a grant to take a systems biology approach to study the differences between individuals who do or do not respond to vaccination against the hepatitis B virus. This study
is
one of several projects conducted under a gra
nt to the Baylor Institute of Immunology Research in Dallas as part of the Human Immune Phenotyping Centers program. We have been awarded a total of $1.4 million under this grant.

·

September 2008, NIAID awarded us a five-year $17 million contract to develop our ISS technology using TLR9 agonists as vaccine adjuvants. The contract supports adjuvant development for anthrax as well as other disease models.

The following table summarizes the revenues recognized under the various arrangements with the NIH and NIAID (in thousands):

Three Months Ended

Nine Months Ended

September 30,

September 30,

2015

2014

2015

2014

NIAID contracts

$

-

$

255

$

-

$

2,094

All other NIH contracts

359

159

608

452

Total grant revenue

$

359

$

414

$

608

$

2,546

6. Long-Term Debt

In December 2014, we
entered into a Loan and Security Agreement (“Loan Agreement”) with Hercules Technology Growth Capital, Inc. (“Hercules”) under which we could borrow up to $40.0 million in two tranches and for which we paid a $400,000 facility charge to Hercules.

We drew down the first tranche of $10.0 million upon closing of the transaction on December 23, 2014. The second tranche, of $30.0 million,
was available to
be drawn at our option any time prior to September 30, 2015, but only if we achieved certain milestones relating to the ongoing HEPLISAV–B Phase 3 study (“Milestone A”). Milestone A was achieved in July 2015 as the Data and Safety Monitoring Board (“DSMB”) completed its third prespecified review and recommended that the study continue unchanged; however, no additional amounts were drawn down under the terms of the Loan Agreement.

In September 2015, we repaid all outstanding amounts under the Loan Agreement, at which time our obligations under the Loan Agreement terminated and Hercules released its security interests in all collateral under the Loan Agreement. We paid to Hercules $11.0 million, which consisted of $10.0 million outstanding principal, accrued but unpaid interest of $38 thousand, end of term fee of $0.8 million and prepayment charges of $0.2 million. We recognized the repayment to be a substantial modification to the debt instrument and applied debt extinguishment accounting to record a one-time loss on extinguishment of debt in the amount of $1.7 million.

The interest rate in the Loan Agreement was calculated at a rate equal to the greater of either: (i) 9.75% plus the prime rate as reported from time to time in The Wall Street Journal minus 5.25%, and (ii) 9.75%.
Monthly
payments made under the Loan Agreement between December 2014 and the date of repayment were interest only.

7. Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding during the period and giving effect to all potentially dilutive common shares using the treasury-stock method. For purposes of this calculation, common stock subject to repurchase by us, outstanding options, stock awards, Series B Convertible Preferred Stock, and warrants are considered to be potentially dilutive common shares and are only included in the calculation of diluted net loss per share when their effect is dilutive. Stock options, Series B Convertible Preferred Stock, warrants and stock awards totaling approximately 2,990,000 and 7,500,000 shares of common stock as of September 30, 2015 and 2014, respectively, were excluded from the calculation of diluted net loss per share for the three months ended September 30, 2015 and 2014, because the effect of their inclusion would have been anti-dilutive. For periods in which the Company has a net loss and no instruments are determined to be dilutive, such as the three months ended September 30, 2015 and 2014, basic and diluted loss per share are the same.

14

8
.
Preferred Stock, Common Stock and Warrants

Preferred Stock Outstanding

As of September 30, 2015, there were 5,000,000 shares of preferred stock authorized and no shares of preferred stock outstanding. On February 26, 2015, 26,000 shares of our Series B Convertible Preferred Stock were converted into 2,600,000 shares of common stock. On July 23, 2015, 17,430 shares of our Series B Convertible Preferred Stock were converted into 1,743,000 shares of common stock and no Series B Convertible Preferred Stock remained outstanding.

Each share of Series B Convertible Preferred Stock was convertible into 100 shares of common stock at any time at the holder’s option. However, the holder is prohibited from converting the Series B Convertible Preferred Stock into shares of common stock if, as a result of such conversion, the holder and its affiliates would own more than 9.98% of the total number of shares of common stock then issued and outstanding. In the event of the Company’s liquidation, dissolution, or winding up, holders of Series B Convertible Preferred Stock will receive a payment equal to $0.001 per share before any proceeds are distributed to the common stockholders. Shares of Series B Convertible Preferred Stock generally have no voting rights, except as required by law and except that the consent of holders of a majority of the outstanding Series B Convertible Preferred Stock is required to amend the terms of the Series B Convertible Preferred Stock. Holders of Series B Convertible Preferred Stock are not entitled to receive any dividends, unless and until specifically declared by the Company’s board of directors. The Series B Convertible Preferred Stock ranks senior to the Company’s common stock as to distributions of assets upon the Company’s liquidation, dissolution or winding up, whether voluntarily or involuntarily. The Series B Convertible Preferred Stock may rank senior to, on parity with or junior to any class or series of the Company’s capital stock created in the future depending upon the specific terms of such future stock issuance.

Common Stock Outstanding

As of September 30, 2015, there were 38,425,277 shares of our common stock outstanding.

On November 10, 2014, we entered into an At Market Issuance Sales Agreement (the “2014 ATM Agreement”) with Cowen and Company, LLC (“Cowen”) under which we could offer and sell our common stock from time to time up to aggregate sales proceeds of $50 million through Cowen as our sales agent.
The 2014 ATM Agreement terminated in July 2015 when we reached an aggregate of $50 million of gross proceeds from sales of our common stock as specified in the 2014 ATM Agreement.
As of September 30, 2015, we had sold 2,125,439 shares of common stock under the 2014 ATM Agreement resulting in net proceeds to us of approximately $49.0 million.

In
July 2015, we completed an underwritten public offering of 5,227,273 shares of our common stock, including 681,818 shares sold pursuant to the full exercise of an overallotment option previously granted to the underwriters. All of the shares were offered at a price to the public of $27.50 per share. The net proceeds to us from this offering were approximately $134.9 million, after deducting the underwriting discount and other estimated offering expenses payable by us.

Warrants

As of September 30, 2015, no warrants to purchase shares of our common stock were outstanding.

The aggregate intrinsic value of the restricted stock units outstanding as of September 30, 2015, based on our stock price on that date, was $4.7 million.

As of September 30, 2015, approximately 75,000 shares underlying stock options and restricted stock units awards with performance-based vesting criteria were outstanding. Vesting criteria for these performance-based awards have not been met as of September 30, 2015.

Under our stock-based compensation plans, option awards generally vest over a four-year period contingent upon continuous service and expire ten years from the date of grant (or earlier upon termination of continuous service). The fair value-based measurement of each option is estimated on the date of grant using the Black-Scholes option valuation model.

The fair value-based measurements and weighted-average assumptions used in the calculations of these measurements are as follows:

Stock Options

Stock Options

Employee Stock Purchase Plan

Three Months Ended

Nine Months Ended

Nine Months Ended

September 30,

September 30,

September 30,

2015

2014

2015

2014

2015

2014

Weighted-average fair value

$

17.63

$

10.10

$

13.23

$

15.20

$

9.18

$

7.40

Risk-free interest rate

1.7

%

1.9

%

1.7

%

1.8

%

0.4

%

0.2

%

Expected life (in years)

5.8

5.5

5.9

5.9

1.2

1.2

Volatility

0.7

0.8

0.7

1.4

0.6

0.9

We recognized stock-based compensation expense of $2.6 million and $1.6 million for the three months ended September 30, 2015 and 2014, respectively.
We recognized stock-based compensation expense of $6.5 million and $4.5 million for the nine months ended
September
30, 2015 and 2014, respectively.
The components of stock-based compensation expense were (in thousands):

Three Months Ended

Nine Months Ended

September 30,

September 30,

2015

2014

2015

2014

Research and development

$

1,232

$

731

$

2,985

$

2,161

General and administrative

1,398

855

3,517

2,371

Total

$

2,630

$

1,586

$

6,502

$

4,532

As of September 30, 2015, the total unrecognized compensation cost related to non-vested equity awards including all awards with time-based vesting amounted to $20.2 million, which is expected to be recognized over the remaining weighted-average vesting period of 2.9 years. Additionally, as of September 30, 2015, the total unrecognized compensation cost related to equity awards with performance-based vesting criteria not deemed probable of vesting amounted to $2.6 million.

Employee Stock Purchase Plan

As of September 30, 2015, 99,600 shares were approved for issuance under the 2004 Employee Stock Purchase Plan, subject to adjustment for a stock split, or any future stock dividend or other similar change in our common stock or capital structure. As of September 30, 2015, employees have acquired 94,709 shares of our common stock under the 2004 Employee Stock Purchase Plan. As of September 30, 2015, no shares of our common stock remained available for future purchases under the 2004 Employee Stock Purchase Plan.

16

In May 2014, stockholders of the Company approved the 2014 Employee Stock Purchase Plan (the “Purchase Plan”), pursuant to which the Company ma
y issue up to
50,000
shares of its common stock, subject to adjustment, to its employees
. The Purchase Plan
provides for the purchase of common stock by eligible employees and became effective on May 28, 2014. The purchase price per
share is the lesser of
(i) 85% of the fair market value of the common stock on the commencement of the
offer period (generally, the six
teenth day in February or August) or (ii) 85% of the fair market value of the common stock on the exercise date, which is the last day of a purc
hase period (generally, the f
if
teen
th day in February or August).
As of
September
30
, 2015, employees have acquired
21,979
shares of our common stock under the Purchase Plan and
28,02
1 shares of our common stock remained available for future purchases
under the Purchase Plan.

17

ITEM 2.

M
ANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Conditio